Accountancy · Ch 2 — Accounts of Not-for-Profit Organisation
Meaning and Features of Not-for-Profit Organisations
Meaning and Features of Not-for-Profit Organisations
Every organisation is not run with the objective of earning profit. Alongside profit-seeking businesses, a very large part of everyday economic life is carried on by Not-for-Profit Organisations (NPOs) — sports clubs, cultural societies, charitable hospitals and schools, professional associations (such as a Chartered Accountants' association or a teachers' guild), trusts, and welfare associations. Their purpose is to render a service to their members or to society at large, not to accumulate wealth for owners.
Tamil Nadu's Higher Secondary Accountancy syllabus (Samacheer Kalvi) treats Not-for-Profit Organisation accounts as a standalone unit, but the underlying principles are the same well-established accounting principles used across Indian commerce curricula, including CBSE/NCERT Accountancy — only the illustrative names and numbers differ from book to book.
Distinguishing features of a Not-for-Profit Organisation
| Feature | Not-for-Profit Organisation | Profit-Seeking Business |
|---|---|---|
| Objective | To provide a service to members/society | To earn profit for owners |
| Owners | No owners in the business sense; run by members through a managing committee | Proprietor(s)/partners/shareholders |
| Source of funds | Subscriptions, donations, entrance fees, grants, legacies | Capital introduced, loans, sales revenue |
| Result of operations | Called Surplus (or Deficit if expenditure exceeds income); ploughed back into the Capital/General Fund, never distributed | Called Profit (or Loss); may be distributed to owners |
| Final statements | Receipts and Payments Account, Income and Expenditure Account, Balance Sheet | Trading and Profit and Loss Account, Balance Sheet |
| Capital | Called Capital Fund or General Fund | Called Capital |
Because members contribute subscriptions and donations rather than 'investing' in the ordinary business sense, and because the whole point is service rather than a return on investment, NPOs prepare a different set of final accounts from a trading business — a Receipts and Payments Account, an Income and Expenditure Account, and a Balance Sheet — each covered in the sections that follow.
An organisation formed to provide a service to its members or to society — such as a club, society, charitable hospital, school, or professional association — and not to earn or distribute profit. It is financed mainly through subscriptions, donations, entrance fees, grants, and legacies.
The equivalent of profit/loss for a not-for-profit organisation. Surplus is the excess of income over expenditure (the credit balance of the Income and Expenditure Account); Deficit is the excess of expenditure over income. Neither is distributed to members — it is added to (surplus) or deducted from (deficit) the Capital Fund.